The financial effects of the COVID-19 pandemic are starting to be felt by many businesses with debts remaining unpaid for longer and those that may have limped through until now starting to have liquidity or cashflow problems.
If you or your business are considering options for debt recovery from customers, note that during the pandemic period (24 March – 25 September 2020 or any longer period prescribed by Regulations*), the laws regarding insolvency and bankruptcy in Australia have been varied by Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) such that when enforcing debts, the following have changed from the usual arrangements:
The temporary measures to the operation of the Bankruptcy Act 1966 (Cth) and its Regulations introduced by the federal government include:
- the minimum amount of a judgment debt required for the issue of a Bankruptcy Notice has increased from $5,000 to $20,000; and
- the recipient individual’s time to pay or respond has increased from 21 days to 6 months.
Once a Bankruptcy Notice expires without being met an “act of bankruptcy” will have occurred and, as usual, the creditor that issued it can commence court proceedings to seek a sequestration order to bankrupt the individual.
Other changes include those in relation to the moratorium period for those that submit a declaration of intention to present a debtors petition for their own bankruptcy
The temporary changes affecting the Corporations Act 2001 (Cth) and its Regulations in relation to corporate debts include:
- the threshold amount of debt/s required for the service of a Creditor’s Statutory Demand has increased from $2,000 to $20,000; and
- the recipient company’s time to pay or respond has increased from 21 days to 6 months.
Once a statutory demand expires without the debt being paid or an arrangement for the payment of the debt being agreed, the creditor can commence court proceedings to wind up the debtor company.
Director liability for insolvent trading
Similar changes have also been made to laws regarding director liability for insolvent trading where the debts are incurred in the ordinary course of business (temporarily supplementing existing “safe harbour“provisions).
The above changes do not affect other enforcement measures such as: winding up companies on the ‘just and equitable‘ ground; garnishee orders; or writs for the levy of property.
The Schedule 12 changes relate only to those Bankruptcy Notices issued in the relevant period and those Creditor’s Statutory Demands served in the relevant period, not those issued or served (as the case may be) prior to 24 March 2020.
(*Note on 07 September 2020, the Federal Government extended these measures until 31 December 2020).
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.